Party autonomy and arbitration

The agency of the parties to choose non-state rules as the applicable law is thus larger in arbitration than in court litigation in most countries. In Brazil party autonomy is limited in litigation, but in arbitration the parties can choose the applicable law and they also have the right to choose non-state rules as the applicable law.

The arbitral tribunal also has more rights to apply non-state rules in the absence of a choice of law clause. Under different arbitration laws and rules the Tribunal can apply non-state rules in the absence of a choice of law clause, even without making reference to a state law.

The reasons why a tribunal might choose non-state rules could include (a) double choice of law so these cancel each other out (b) complete silence which indicates the parties could not agree on a choice of law, (c) the parties have not made a choice of law but refer to non-state rules in their contract,

• (d) it is substantively the most appropriate choice according to the tribunal or
• (e) the circumstances are such that it is clear the parties want as little interference from state law as possible. When the parties do not include a choice of law clause, they could be more satisfied if the arbitrator applies non-state rules because these are perceived as more neutral. Especially in contracts between a state entity and a company the perceived neutrality of non-state rules can be very important. The state would not agree to any other state law but its own and the company could believe this law to be biased towards the state. Non-state rules would then be a neutral option that is preferred by both parties.

The most important reason why states allow greater freedom in arbitration is that as the arbitrator is detached from the domestic legal order his decisions do not influence the development of domestic law and as the forum is private it has no consequences for the legal system if the tribunal applies the law incorrectly. Consequently, it cannot be said that if non-state rules can be applied in arbitration this is because the law endorses the application of non-state rules as a choice of law. It rather flows from a positive attitude of the state towards arbitration as a dispute resolution mechanism that should be given freedom in form and substance. The parties should be free to shape the arbitration as they wish, including the substantive law. There is a certain symmetry in the fact that non-state rules can be applied when using a non-state dispute resolution body.

If non-state rules are applied within international arbitration the sphere in which the dispute is resolved is (almost) truly transnational. It is not completely detached from the legal order because the lex arbitri and the lex fori where the award is enforced play a role. Yet, for all intents and purpose an international arbitration decided according to non-state rules does exist in a transnational sphere because of the minimal connections with any domestic legal system.

Arbitral awards can shed led light on the acceptance of non-state rules by the business community. If non-state rules are chosen or applied with some frequency, this indicates a degree of support among the business community. Arbitral awards can in this way contribute to the formation of custom and usages, which in turn can be applied by courts. These awards can be used by courts to find the substance of uncodified non-state rules or as evidence of the acceptance of a non-state rule as a trade usage.

As arbitral proceedings and awards are confidential it is difficult to gauge how often the parties choose non-state rules. The ICC publishes a yearly statistic reports on arbitral awards rendered under their Tribunal. In 2018 only 2% of the contracts subject to an ICC Award contained a choice of law

¹

See for instance ICC Case No 8501(1999) where the Tribunal decided to apply the CISG and the UPICC in absence of a choice of law clause on the basis that the parties had referenced the INCOTERMS and the UCP 500 in other contractual clauses (collected in Jean-Jacques Arnaldez, Yves Desrains and Dominique Hascher, Collection of ICC Arbitral Awards 1996-2000 (Wolters Kluwer 2009)).

clause for non-state rules.^[1] UNILEX has 196 arbitral proceedings on their database where the UNIDROIT Principles were used in some capacity (not necessarily as choice of law and regardless of whether the usage was at the parties’ initiative or that of the tribunal.) Over a period of over 20 years these numbers are small but given the confidentiality of arbitral proceedings we do not know in how many more cases they were used.

• [1] ICC, ICC Dispute Resolution 2018 Statistics (2019) ICC Publication No.898E, 13 Available online: www.iccwbo.org/cir-stat2018 (Compared to 87% for a state law of which the most popular is English law with 16% and the law of a US state with 12% (New York in half those cases), followed by France and Switzerland with both 9%). 2 http://www.unilex.info/principles/cases/arbitral_award (Numbers dating from March 2020). 3 Article 21 1. The parties shall be free to agree upon the rules of law to be applied by the arbitral tribunal to the merits of the dispute. In the absence of any such agreement, the arbitral tribunal shall apply the rules of law, which it determines to be appropriate. 2 The arbitral tribunal shall take account of the provisions of the contract, if any, between the parties and of any relevant trade usages. 3 The arbitral tribunal shall assume the powers of an amiable compositeur or decide ex aequo et bono only if the parties have agreed to give it such powers. http://www.iccwbo.org/products-and-services/arbitration-and-adr/arbitration/ icc-rules-of-arbitration/. 4 The UNCITRAL Arbitration Rules (as revised in 2010) Article 35.1 http://www.uncitral.org/pdf/english/texts/arbitration/arb-rules-revised/arb-rules-revised-2010-e.pdf. 5 Ibid.